Information from irs.gov
An early withdrawal from your retirement plan may trigger an additional tax on top of income tax taxpayers may have to pay. Know the following when considering taking an early distribution:
- Early Withdrawal is normally defined as taking cash out of a retirement plan before the taxpayer is 59½ years old.
- Additional Tax may be owed on the amount taken out and you may need to pay an additional 10% tax. Remember you must also report the withdrawal to the IRS.
- Nontaxable Withdrawals. The additional 10 percent tax does not apply to nontaxable withdrawals. These include withdrawals of contributions that taxpayers paid tax on before they put them into the plan. An example is a rollover, which occurs when you take cash or other assets from one plan and put the money in another plan. You usually have 60 days to complete a rollover to make it tax-free.
- There are many exceptions to the additional 10 percent tax. Some of the rules for retirement plans are different from the rules for IRAs.
- If you took an early withdrawal last year, you may have to file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with your federal tax return.
If you are unsure as to whether or not your withdrawal is subject to the additional tax, give us a call.
